Home Buyers: What Happens at the Closing

How, exactly, ownership of a home gets transferred from seller to buyer.

The time leading up to your home purchase closing is going to be busy. You’ll be cleaning, packing, contacting movers, changing over your utilities, and deciding which of your household items to move, sell, or give away. If you’re moving to a new community, you’ll also be changing your medical and other professional service providers, registering your children in new schools, and finding a new health club, grocery store, or favorite restaurant. With so much to do, it’s often difficult to focus on the details of the closing.

You may have hired an attorney to negotiate your purchase contract and help you through the closing process. If so, your attorney will help explain the closing process, review the closing documents, calculate the funds you need to bring to closing, and notify you of what items you should bring. Your loan officer or mortgage broker can answer your questions about what you need to do to meet any outstanding loan conditions. Your sales agent will schedule your walk-through, and can contact the listing agent if you have questions for the seller.

Unfortunately, much of the information you need to complete your closing will come at the last minute, just when you’d prefer to focus on your move. That’s why this article may come in handy, to help you understand the big picture: what a closing is, and what will happen during the closing. For details on the documents that will be created or exchanged at the closing, see “Home Buyers: What Documents to Expect at Your Close of Escrow”.

What Is a Closing?

Simply put, a closing is the final performance of all of the agreements you made with the seller and your lender for the purchase and financing of your new home. If you are buying solely with your own cash, no lender will be involved. If you are financing your purchase, however your loan will close at the same time and place as your purchase.

A closing is often called “settlement” because you — as buyer -- along with your lender and the seller are “settling up” among yourselves and all of the other parties who have provided services or documents to the transaction.

Settlement involves the simultaneous exchange of documents, and funds required to complete the transaction. You pay the purchase price to the seller with a combination of your down payment, your own funds, and the proceeds of your loan. In exchange, the seller gives you a deed and other transfer documents, and clear title to the property.

You receive the proceeds of your loan from your lender — the face amount of the loan less fees and initial interest. In exchange, you give your lender a written promise to repay the face amount of the loan, and a lien on the property. The seller pays off the old loan and pays commissions to the real estate agents (per the listing agreement between the seller and the listing agent). Both buyer and seller pay their respective fees and costs to the various parties who contributed funds, services, or documents to the closing.

Exercise your writing hand, and bring your favorite pen to the closing, because you will be signing a lot of documents.

What and Where Your Closing Will Take Place

If you are taking out a loan, your closing will take place at the office of a settlement agent, also called an “escrowee.” The escrowee can be the title company — that is, the company that insures your ownership of the property. However, in some states (such as Alaska), or local areas (such as Southern California), you are more likely to close at the lender’s office, or at an escrow company. Upon request, some title or escrow companies will send a mobile escrowee to close in a location convenient to all of the parties.

If you are purchasing your home for cash, no lender is involved, so you and the seller can decide the most convenient closing location. Your attorney, or the seller’s attorney, may offer his or her office, but restrictions in client trust accounting may make it impossible for the attorney to disburse funds immediately.

Some closings are “witness-only.” That means that a notary or attorney goes to a location convenient to the buyer and seller to provide the loan documents and disbursement services. However, the notary or attorney will not explain the legal effect of the documents or the closing. Witness-only closings are not legal in all states. For example, Connecticut, Delaware, and Georgia require an attorney to complete all aspects of the closing. These closings will often close in the attorney’s office.

When the Closing Is Over

When all the above is done, you become the owner of the property. You will be allowed to take possession immediately or shortly after the closing, unless you have made an agreement with the seller to take possession either earlier or later. All of the requirements, tasks, and other promises in your contract with the seller will be met, completed, or delivered, unless you have made post-closing agreements. Common post-closing agreements involve reimbursements for real property taxes when the exact amounts to be due are unknown at the closing, or repairs that could not be made prior to the closing.